The Supreme Court of the State of Delaware recently reversed a Court of Chancery decision declining to appoint a receiver for a dissolved Delaware corporation, Krafft-Murphy Company, Inc. (Krafft). The Chancery Court determined that a receiver was inappropriate because Krafft had no property for the receiver to distribute to potential tort victims. The Supreme Court disagreed, holding that an unexhausted insurance policy is property of the dissolved company even after its three-year wind-up period under Delaware law.

In In re KB Toys,¹ a recent decision by the Third Circuit Court of Appeals, the Court held that a claim that is disallowable under § 502(d)² if held by the original claimant is also disallowable in the hands of a purchaser or subsequent transferee. In other words, if a creditor sells or assigns its claim to a claims trader and the creditor later becomes liable on a preference or fraudulent transfer,³ the claim may be disallowed in the hands of the claims trader if the creditor fails to pay the amount it owes to the estate.

On October 30, 2013, Brazilian oil company OGX Petróleo e Gas Participações SA (OGX) filed for bankruptcy protection (or “judicial reorganization”) in Rio de Janeiro after restructuring discussions between the company and its major creditors ended without agreement. With nearly $5 billion of debt, OGX is the largest and most complex bankruptcy proceeding to be conducted in Latin America and will not only test Brazil’s nascent bankruptcy law, but also presents itself as the latest potential opportunity for distressed investors focused on Latin American emerging markets.

An employer that sponsors a single-employer defined benefit pension plan was acquired by a Japanese parent.  The employer entered into bankruptcy and, as part of the proceedings, the Pension Benefit Guaranty Corporation (the “PBGC”) terminated the pension plan.  The PBGC then sought in federal court to recover the amount of the unfunded liability from the Japanese parent.  The PBGC also sought payment of the termination premium designed to be payable when a reorganizing company emerges from bankruptcy and to collect that premium from the parent.  The pare

On July 24, 2013 the First Circuit Court of Appeals, applying an “investment plus” test, concluded that a Sun Capital private equity investment fund was engaged in a “trade or business” for purposes of determining whether the fund could be jointly and severally liable under ERISA for the unfunded pension withdrawal liability of the portfolio company.¹ Two Sun Capital investment funds, conveniently named Sun Capital Partners III, LP (“Fund III”) and Sun Capital Partners IV, LP, (“Fund IV”) (the “Sun Funds”) collectively owned 100 percent of Scott Brass, Inc.

The City of Detroit filed for protection under chapter 9 of the Bankruptcy Code on July 18, 2013,1 becoming the largest municipality to ever file for bankruptcy. Detroit’s bankruptcy filing presents numerous complicated issues, which will be resolved over the course of the case.

The absolute priority rule ordinarily prevents a Chapter 11 debtor from distributing any money or property to junior creditors and old equity investors unless all senior creditors have first been paid in full. See 11 U.S.C. § 1129(b)(2)(B)(ii). Nevertheless, old equity investors may attempt to receive new equity in the reorganized debtor in consideration for providing new (post-bankruptcy) investments in the debtor.

The US District Court for the Southern District of New York affirmed an order rejecting an objection to the confirmation of a Chapter 11 Plan of Reorganization for Dynegy, Inc. and Dynegy Holdings, LLC (together, Dynegy) for a lack of standing.

The US Court of Appeals for the Ninth Circuit recently resolved a split within the circuit when it held that a bankruptcy court has the power to recharacterize debt as equity.

The United States District Court for the Northern District of Mississippi denied the motion of defendant ACA Financial Guaranty Corporation (ACA) to dismiss a class action complaint, finding that the issues were previously adjudicated adversely to ACA in the New York Supreme Court where a companion case, Oppenheimer v. ACA Financial Guaranty Corporation, is currently pending.